For most of its 8-year-old existence, Colorado’s New Age Beverages (NAB) (NASDAQ:NBEV) has been an energy drink, ready-made tea, and coffees maker. For most of 2018, this stock has fallen in the cheap stocks range, selling for somewhere between $1.50-$2.50 USD.
But then last month, NAB switched it up; it jumped on the CBD band-wagon and launched a new line of CBD-infused beverages. When the announcement first arrived in September, NBEV stock jumped an astronomical 262%—such is the power of the CBD market right now—selling for $8.47 USD at the height.
Cheap Stocks in CBD
But once October rolled in, the stock fell 15.3%. It then continued to fall in November, down 20.5% on the month.
Now, at the time of writing, NBEV stock is still down a further 5.67%, selling for $3.24 per share.
Cheap Stocks: Why So Volatile?
What is it about this sector that seems to bring such volatility? We saw it happen after cannabis was legalized in Canada on October 17th—the entire market pulled right back after a huge run-up throughout late summer.
One reason for the decline in October is simply the quick investors who take the profits and scram at the height of September’s run.
November’s decline can be attributed to the company’s announcement of a $45 million stock offering. Stock drops are common after an offering because issuing new shares tends to dilute the shares owned by existing shareholders.
Can Cheap Stocks Survive Against Big Names?
But then there’s the bigger picture. The CBD drinks market is already huge, and it’s getting bigger. New Age Beverages is a small company with limited cash flow and distribution networks. How will it stand up in this market that will soon be joined by giant’s Pepsi (NASDAQ:PEP) and Coca-Cola (NYSE:KO)?
So lucrative is the CBD game that the biggest and most deep-pocketed players out there will soon be playing. And once they do, survival will become a real issue for many smaller companies.
Perhaps this is why CBD investors aren’t hanging around after the initial hype. After all, nobody can tell who will actually survive in this highly lucrative market once the biggest names of all enter the space.
Featured Image: flickr